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Reversing Globalization

What is there to say about this week?  With earnings announcements all but wrapped up, investors returned to news about the pandemic and more broadly, the effect it is having on the economy.  Perhaps intentionally, the Fed chose this week to highlight the dire situation we find ourselves in and in so doing, ushered in a new round of fear.  The market reacted accordingly.
The chairman of the Federal Reserve, Jay Powell, sent markets lower after his speech this week.  He painted a grim picture of the U.S. economy when he said, “the path ahead is both highly uncertain and subject to significant downside risks.”  This is unusually blunt language from someone who normally speaks so ambiguously that analysts frequently have to read between the lines.  While intending to soothe investors, Mr. Powell quite possibly did the opposite when he said, “While the economic response has been both timely and appropriately large, it may not be the final chapter.”
Not to be outdone, Dr. Fauci followed Mr. Powell’s dire outlook with some gloom of his own.  In a Senate hearing on Tuesday, Dr. Fauci warned that reopening businesses too soon, without proper testing and tracing protocols, could trigger economic setbacks should the coronavirus resurge.  Given these two somewhat grim viewpoints, can you blame investors for retreating this week?
On a more positive note, just as grilling season heats up, Tyson will be cutting some beef prices 20-30% in response to surging prices caused by coronavirus outbreaks at meatpacking plants.  The company has been in the spotlight because beef prices have risen significantly as cattle prices have fallen.  The company, which processes approximately 20% of all U.S beef, says it will reduce prices for ground beef, roasts, and other beef products for sales made this week to grocery stores. 
Another positive development was announced regarding supply chains.  In recent weeks, we’ve questioned the resilience of supply chains flung to the far corners of the world.  There have been rumblings to bring some of that production back to the United States.  This week we learned that Taiwan Semiconductor, the world’s largest dedicated chip foundry with over 50% market share, plans to build a $12 billion chip factor in Arizona.  The plant, which would create 1,600 jobs, will produce the most sophisticated chips that can be used in high-end defense and communication devices.  Finally, a step in the right direction.
Additionally, is seems President Trump is close to signing an executive order which will require certain essential drugs to be made in the United States.  The order directs the Department of Health & Human Services (HHS) to study the supply chains, analyze weaknesses, and report back to the Administration in three months.  Roughly 72% of pharma ingredient manufacturers supplying the U.S. are located overseas, according to congressional testimony from the FDA.  This is another step in the right direction.
In closing, I came across what I thought inconceivable.  In the three days following Carnival Cruise’s announcement it will begin offer cruises in August, booking surged 600%, and were 200% higher than the same time period in 2019.  It seems pent up demand is behind much of this surge; however, the CDC must sign off before anyone goes anywhere.  Carnival describes most of the clients booking cruises as young, healthy, and eager to travel.  While I know I won’t be among those booking a cruise in the near future, I wish those who do safe travels.  Now you know.

Bruce J. Mason, MBA